Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

well my former hero
before Moodiies testimony that is
has clearly strayed from fundamentals this cannot possible be a balance sheet bet
but i cant call this a bad trade he just talked to the guys that will make it work

One of the analyst said recently that even if BAC didn’t need capital, they should get some just to show they can and to show they aren’t falling apart. Sorry but when you tell us they need $50 billion and then say $5 billion is saving their bacon, I’d have to say all that has happened is you’ve covered your short.

~~~

BR: Never had a short position in BAC — I disclose any position I write about.

BTW, do healthy people get stents placed in their hearts just to prove they are healthy?

it is of course all eyewash $5 bio is chump change compared to the BAC issues
unlike GS where the dollars were big enough to make a diff
this is why i petrified of shorting these turkeys
even a bogus rescue news kills that moment
but this may fly, bend over taxpayers
anyone not understand why obama geithner dont want to announce anything
just do it via their buddy?

” He’s buying 50,000 preferred shares of Bank of America at a dividend of 6% a year. He’s also receiving warrants on 700 million shares at a strike price of about $7.14 a share. Those warrants would have been out of the money yesterday, but will be in the money as soon as markets open. The deal will make Buffett one of Bank of America’s biggest shareholders. ”

Once gain, BR, you are rattling the chains of the bank and the USA. You are piling on this bank and on our country. Youa re attempting to continue selling your book..and continue on a one-track beating up of America in order to make your own name in financial circles.

Try being positive for a change…..we need you and others to see the best, not the worst, of the USA, the banking system, the marketplace.

From outside of NYC we see the negativity of New Yorkers.
It isn’t attractive.

>> BoA needed both capital and a reputation reboot. Buffett provided a little bit of both.

Some companies don’t deserve to be saved. By investing in GS or BAC in their time of need, Buffett helps perpetuate them. I say he’s hurting his reputation in some circles (e.g., the circle around my desk).

Did anyone actually read the terms? This is one great deal for Buffett regardless of what happens. And if BoA took this deal, what does that tell you about what’s going on? Are they hoping that this puts a nice halo around the bank because of Buffett’s stature rubbing off? They’d better hope a lot rubs off because, right now, they are a total mess.

Does this save them? Maybe. Sometimes good PR is a self-fulfilling prophecy. But I think the losses to come and fines are still going to be staggering.

On the surface, this deal smells of counter-party exposure. While at first glance it appears to be a smart investment that returns 4% above 10-year T-bills, it looks like a desperate attempt to shore up a shaky system that could put Buffett’s WFC and General RE positions under considerable stress.

There are a ton of legal questions we need to know before we can look at this as good, bad, or otherwise.

Frankly, if things are as rosy as some make it out to be at BAC, the dillution from the common warrants should be a counterweight to any positive action from the preferred buy-in capital.

This could also be one of those shotgun marriages like what we saw in fall 2008, only with guarantees from the Treasury and Fed. Buffett’s people are not going into this unless he’s playing an outcome where he is made whole no matter what transpires.

So how does this fix RE which in my view is FUBAR’d for at least a decade–given that wages and employment are stagnant at best, falling at worst. BAC fortunes seem to be tied to RE’s hip.
Makes me wonder what Buffett’s plan is to to undo two of the worst negotiated decision in banking history: the deal for ML and the absofarkingly retarded decision to buy Countrwide BEFORE it went into the shitter…knowing CW was going into said crap hole on share price within weeks. I mean I’m a big fan of Buffett but what’s the plan? I once talked to the brother of a well-known D.C. insider, circa early ’09, who works on Wall Street himself, talking about a BAC collapse like we were talking about a bad weekend for the Yankees. I’m frankly surprised BAC isn’t paying Buffett to get on this. I guess that BAC balance sheet didn’t have nearly as many hand-written red marks as Lehman’s sheet.

Single family RE may be as bad as you say, but I’m willing to bet that apartment construction numbers will begin to surprise on the upside by next spring. And if construction starts to pick up, there is a virtuous cycle beginning.

1) To freitagfan: As per my terms & disclosures, I disclose all my positions mentioned in posts. If I don’t mention a long or short position, you may assume I have no position. Your insinuation otherwise is offensive
BTW, whats your BAC position?

2) To robert d:
a) “Be positive for a change” This isn’t a hobby, and I have fiduciary obligations to clients.
When conditions warrant, as in March 09, I flip positive. When they dont, I dont.
b) I cannot afford self-indulgent luxuries such as cheerleading or partisanship, as they are costly in the markets. You and Dr.Vincent Peale have that luxury, I dont.
c) The last time I warned about a slew of companies — AIG, FM/FRE, LEH, BAC, C — they mostly went to zero. YMMV
d) If you think objectively analyzing what is going on is “piling on our country,” well then all I can say is this country is being destroyed by the reality challenged. You cannot fix things unless you know whats broken and understand how. The frighteningly clueless are dangerous to healthy countries that engage in honest introspection.

OK, this may be a stupid question, but if the president told Buffett that he was going to propose the mortgage/foreclosure/rate < program that has been widely discussed of recent days and BOA would benefit, would Buffett (god forbid) be accused of insider trading? At what point would this by an issue? If the president merely said he "was considering…" would that be enough? My wife is an attorney if would have mentioned it to her, she would have likely said, "Hell, ask Barry. Doesn't he have a law degree?"

The preferred Buffet is buying is not at a discount to other issues perpetual preferred shares that are trading, and BAC common trades around 2bn USD a day, so assuming Buffet doesnt want to be more than 10 procent of the daily trading volume, it would take him 25 business days to put the trade on.

” . . . all I can say is this country is being destroyed by the reality challenged. ”

Bravo!

I have grown weary of this conflating of patriotism and a very faux patriotism. That is to say, sapping this nation’s wealth in an attempt to shore up a very broken financial system which has proven incapable of managing risk. The implication that these institutions are somehow critical to this nation’s security and prosperity, while they create a massive drain on GDP, is ludicrous, to say the least.

Buffett exited his goldman investment… at a healthy profit if i recall correctly.

—-
as for the rest

He’s hard to bet against. He doesn’t win them all but he’s right often enough that it’s tough to be on the other side.

Barry may be right that he has intrinsically changed the odds though just by his name stepping in. If it was random anonymous billionaire “X” or mutual fund X buying this it might be NBD… but with Buffett it sends a signal.

With that said, I bought a B-share i think in early 08. $4600ish back then. I was thinking it was like a mutual fund with almost no expense ratio, and in the value space where I normally don’t play anyway.

Oops. Average loss has been about 8% a year, year after year. Split adjusted I need those b-shares to get back to 90 something.

Berkshire’s Goldman Sachs infusion back in late 2008 was essentially collateral for a massive underwater naked put position Buffett wrote on the S&P prior to the financial crisis.

Berkshire’s GE infusion also had the hallmarks of counterparty CDS risk, with GE and General RE likely involved.

My point here is that unless Berkshire’s position is a death-spiral convertible preferred issue, there has to be some kind of CDS counterparty risk that BAC, the Fed, and the Treasury leveraged to get this infusion. The buy in makes no sense unless it is a death spiral convertible preferred or collateral for underwater credit default swaps.

If this is a case of CDS gone bad, why did it happen now and not in 2008? What has changed since then between Berkshire and BAC?

If you think objectively analyzing what is going on is “piling on our country,” well then all I can say is this country is being destroyed by the reality challenged. You cannot fix things unless you know whats broken and understand how. The frighteningly clueless are dangerous to healthy countries that engage in honest introspection.

the wisest thing i have read in a long time…
these folks cloak themselves as patriots, confidence builders and displayers of mental health

Let’s not forget what happened last week with the downgrade, Buffet chiming in with his “AAAA” comment, and, lo and behold, the top gun at S&P (a competitor) is suddenly retiring after an investigation is announced. Hmmmmm………and, then, Buffett does his usual “aw shucks, I’m just a cherry cola junkie from Omaha who knows how to pick ‘em” media tour telling us America is the best place in the world, meets with Obama (like that doesn’t happen a lot), and, now this. BTW, The Oracle himself is holding a fund raiser for the Orator in Chief in the next few days. Hmmmmmm………

This is a win, win,win for Buffett
1) the deal he got, while not a sure thing, is a lot better than was available to anyone else
2) If BAC had completed it’s trip into the shitter it would have pulled down Buffet’s WF turd too
3) If BAC precipitated a rerun of the last crisis then Buffet’s favorite sitting president would be toast

Moynihan must have been negotiating this deal while he was disavowing the need to raise capital, so much for believing anything he says. Of course he could say they did the deal because they needed credibility not cash…but thats not a very healthy message to put out, kind of like saying we just needed some high visibility eyewash. Celebrity investing.

If BAC has some serious problems in the opaque cloud of bank accounting then this only buys a little time

The deal is not at all that great for Buffet, but the only way he can gain that kind of exposure so quickly. The prefs yield 6 percent, the warrants were probably worth around 700m-1bn USD (when doing this kind of size, that far out, you usually pay close to the long term vol avg, maybe 35 is reasonable), making the effective yield on the prefs 7-7.5 percent. Similiar issue prefs traded at a yield of 8.5 as of yesterday. Maybe Im miscalculating something here.

As Becky quickly rolls over her weeks-old baby to pick up Uncle Warren who breathlessly tells us that Warren got the idea in his bathtub Wednesday morning to get 6% with a “what-you-don’t know” put. Not so fast, Archimedes and hold the Eureka but my momma got out of her tub yesterday and got a 5 yr CD at 1.0% for her kind of hard-working savings money. This avuncular land shark gets the ear of the NYFED and access to Permanent Zero funds to fund his ATM calls, without mentioning the AIG no-haircut free money granted in 2008 for his armchair heroics that kills anyone’s Bar Mitvah money.
Enjoy the circus; watch your wallets.

“…this country is being destroyed by the reality challenged. You cannot fix things unless you know whats broken and understand how. The frighteningly clueless are dangerous to healthy countries that engage in honest introspection…” –BR, above

I know you posted this article (below) earlier this month, but haven’t seen anyone explicitly connecting this ‘dot’ to the Buffett announcement as well as Obama/Geithner’s inability to tie-off New York Attorney General Eric T. Schneiderman’s pursuit of BAC.

Granted, there’s so many leaks in the dike, it’s hard to keep track anymore but I don’t know how anyone could honestly argue that BAC is not on life-support. If BAC is healthy, open the books, mark-to-market, and clear the air. If not, break-up this toxic monster now before allowing to further damage to American taxpayers.

@rktbrkr: easy answer to your question. Inside the bowels of BAC resides now MER the once proud broker who went broke on account of 1 to 56 average leveraged schemes or “products” as they called them. So, take the $5B from WB and have the ex MER wizzards appply a measly 1 to 10 levarage hocus pocus and voaila! You’ve got the $50B you needed.

If they had been telling the truth and had been fully committed to the notion that they were not undercapitalized, then why were they allowed by the banking regulators to dilute the shareholders with the Buffett deal?*:

Henry, one problem we have, and I know you KNOW this already, is that we depend on the Federal Reserve to regulate and supervise the banking industry. What do we get for that confidence the Fed wants us to give them?… Nothing? Absolutely nothing. We allow BAC to demonstrate with statements regarding solvency, and then to gut the shareholders by diluting them with a self-serving deal with Warren Buffett, after attacking you, the messenger, simply for pointing out the obvious conclusions of the marketplace itself. I have said this before, but when Warren Buffett dies they will need to put a special hatch-door in his coffin so he can stick his cold dead hand up out of the grave and put one last hotel on Park Place.

*In other words, if they were allowed to (and required to) stand by their statements that they were not capital deficient, then they should be made to resolve the issue without a capital injection from Buffett.

Live by the sword… Die by the sword.

The fact that the Federal Reserve has allowed this is the entire picture of the dilemma we face as citizens in a country in which our regulators cannot be depended on to do what they are responsibly charged to do.

The picture is of a dysfunctional Fed. While I was indeed complimentary of Benber N. Anke in his initial response to the financial crisis (praising him then, Barringo, does not necessarily translate to praise afterward), he should be run out of office on a rail before he has the opportunity to do more damage to the economy that he and his cohorts have already done.

Monetarism is the fault… Blind, unconscionable monetarism.

Let’s see if Benber would want to raise Milton from the dead now and appologize again (like at the little social in which he tongue-in-cheeked an appology to Uncle Miltie) for the Fed’s failure to liquify the economy during the Great Depression years of the 1930s. My God… if it’s not liquid now, when the Hell will it ever be?? No, Benber N. Anke is getting a hard lesson about the failure of his life-long-love-child…Monetarism!

I’ve explained the reason it fails, in my theoretical macroeconomic work that you have both kindly allowed me to publish.

If you look at other preferred series, perptuals, they yielded around 8 percent yesterday close. The warrants for 700m stock, strike 7.14 Aug 2022, the stock was at 7.00 at the time the deal was made, could be valued at tops 4 dollar a warrant, so less than 30m USD altogether. Just for Buffet to accumulate 5bn USD of BAC common would take at least 6-8 weeks. I dont see how this is a bad deal for BAC, if anything its looks expensive for BRK.

correction on the above, the warrants were probably worth somewhere in the range of .7-1.5bn, making the effective yield on the prefs between 7 and 8.5, so if anything Buffet is paying above market rate to get this kind of exposure. If Buffet would have called anyone here and said he wanted to invest in your business, you’d listen, in this case Moynihan made a good deal. Either way the stock price says it all, 7.63, vs 7 when the deal was done, compared to more or less any market that is down over the same time frame.

What did Fannie get for $500M esp if this wasn’t an arms length market price transaction, just wondering how many mortgages, also be interesting to know what BAC carrying value was for these, (mortgages being held for the duration don’t need to be marked to myth or market?) .

ask warren about p 236 notes to the 2010 BAC annual report, such “assets” as
the $16 bio above fair value that loans are “carried” at. As if we believe even their version of fair value
and the $14 bio capitalized value of future mortgage servicing rights. yes that number is a plus

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Ritholtz has been observing capital markets with a critical eye for 20 years. With a background in math & sciences and a law school degree, he is not your typical Wall St. persona. He left Law for Finance, working as a trader, researcher and strategist before graduating to asset managementRead More...

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